A Trader’s Dirty Look
By echotoall
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The below information is a showcase of the ‘quick-and-dirty’ fundamental assessment that I utilize specifically for trading. The concept of the Dirty Look is to be used after a deep analysis of the specific company, and the company’s sector, has been completed.
FYI - Nothing beats a deep understanding of a company, it’s sector and trading dynamic of the underlining security.
The information is itemized into two main quick-and-dirty categories:
Ratios – This section points to a company/stock valuation and health
Information – This section reveals the mindset for staying current on a company/sector, and how news may affect the stock. But, more importantly, I reveal where I get most of my information.
The segments are then followed by a brief introduction into the Deep Analysis I conduct.
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quick-and-dirty ratios
Valuing Ratios:
1. P/E – Price/Earnings
a. Trailing PE: Stock Price / previous 4 quarter Earnings Per Share (EPS)
-The Trailing PE is good to use for historical reference. For instance, if a stock consistently trades at a certain trailing PE, chances are the stock will have that PE again.
An example is BKE (The Buckle). The stock consistently trades between approx. 10 and 14. Buy when the Trailing PE is near 10ish, and sell when near 14ish.
b. Forward PE: Stock Price / Estimated EPS (for the next year)
-The Forward PE is good to use for future reference, and can indicate if a growth stock is relatively cheap in relation to future earnings. If there is a reason to believe analyst expectations are too low, then the stock maybe cheap in relation to its growth, and the stock will ultimately go up. If expectations are too high, then the stock will go down upon this realization.
An example – If AAPL (Apple) is trading with a Forward PE of 16, and its earnings growth rate is north of 20%, the stock is inexpensive.
2. PEG – Price / Earnings / Growth
-The PEG is used to value growth stocks, usually technology orientated stocks (not established companies in established sectors). Like the PE, a PEG is typically at a certain value. At higher times of growth the PEG can be very high, typically above 1.50. At times of lower growth the PEG goes lower.